If you are someone who is still waiting on the fence all these years and did not report any income which should have been reported long back in the income tax return (ITR), then it’s bad news for you. It seems the Income Tax Department has managed to find out the details of taxpayers who have undisclosed income liable for income tax. According to a departmental circular, the list of such names is ready and it is already approved by the Income Tax Board. This list is now being shown to Income Tax Assessing Officers (AO) for them to take actions like sending tax notices under Section 148A, etc. However, this action is limited to specified financial years like FY 20-21 and others.
Read below to know what type of tax notice can be sent to the identified persons and what steps to take now to possibly save yourself from this.
What did Income Tax Department find out
According to our sources, the Income Tax Department has issued an internal internal circular which is also cited by Taxguru.in, and as per this communication a taxpayer who is having income above the prescribed limit or fulfills any other condition mentioned in section 139 of the Income Tax Act, 1961 is required to file return of income. However, there were many taxpayers who did not file ITR despite law mandating them to do so. The income tax department gathered data from various sources like AIS, TDS/TCS statements, statements of financial transactions (SFT), etc and analysed it. Once the analysis was done, the data was matched with ITR filing records and this revealed the names of the taxpayers who had an income liable for tax but did not report it. Now action is being taken against these identified names.
It seems this action is restricted to FY 2018-19, 19-20 and 2020-21 cases (AY 2019-20, 2020- 21 and 2021-22), the circular specified.
“Non-filers with potential tax liabilities are identified by analysing information received under, SFT Data, TDS/TCS Statement, Import Export Data etc. and overall taxpayer profile based on the information available in the database. RMS Cycle – 5 for non-filer category of cases has been executed for AY 2019-20, 2020- 21 and 2021-22 on the basis of rules/parameters approved by the Board under RMS (Risk Management Strategy) for identifying High Risk Non-filer cases with potential tax liabilities,” said the Income Tax Department.
Alay Razvi, Managing Partner, Accord Juris, says: “This circular aims to identify individuals who were required to file Income Tax Returns (ITR) but didn’t do so for AY 2019-20, 2020-21, and 2021-22. The RMS is a system designed by the Income Tax Department to flag taxpayers based on certain risk factors. While the exact rules are confidential, it considers high financial transactions , TDS,TCS, undisclosed income indicators etc. During such review , such taxpayers will be flagged for possible tax evasion.”Ankit Jain, Partner, Ved Jain & Associates, says: “Currently, the Income Tax Authorities receive data in digital format from various sources such as TDS returns, Import Export Data, Statement of Financial Transactions, etc. The information from these sources is compiled and a taxpayer wise summary of the transactions made is generated. The information compiled includes reports of salary received, sale and purchase of mutual funds, equity shares, immovable property, cash deposits, rent received among others.”Jain says: “Based on this summary, the system identifies people whose income/expenditure exceeds the threshold for filing of return but have not filed the tax return. These are marked as non-filers which need to be investigated individually by the tax officers. The tax officer will issue a notice to these people asking them to explain why the tax return has not been filed.”
What type of income tax notice might be sent to the identified persons?
According to the circular cited above, “…Necessary action u/s 148A of the Income-tax Act, 1961 in respect of the above disseminated cases for AY 2019-20, 2020-21 and 2021-22 under RMS Cycle-5 shall be taken after taking into account all relevant applicable provisions of the Act.”
Mihir Tanna, associate director, S.K Patodia LLP says, “The reason why the Income Tax Department is pursuing such cases is because March 31, 2025 is the deadline to issue Section 148A notice of AY 2021-22 if the amount is less than Rs 50 lakh. Also for AY 2019-20, the deadline for issuing Section 148A(A) notice is March 31, 2025 if the amount is above Rs 50 lakh. However for AY 2020-21 there is still time limit for issuing Section 148A notice for both above and below Rs 50 lakh cases.”
Can you save yourself from this tax notice?
There is no good option to save yourself from this tax notice once you have been identified in this list of tax evaders. However, you can do some damage control now by either applying for a condonation of delay, or pay the tax due with interest. Experts say the first option- condonation usually takes a few months if not weeks, while the second option can’t prevent the tax notice from being served, but might prevent levy of penalties. So the situation is now like all the options are bad and you need to choose the best among the bad options available.
The deadline to file ITR-U for AY 2021-22 (FY 2020-21) was March 31, 2024.
“Moreover, the time limit to file ITR-U for AY 2021-22 was March 31, 2024. So now taxpayers who missed reporting any income have only two options to save them- either apply for condonation of delay or pay the due income tax on such unreported income along with penal interest. In the second option, taxpayers will still get a tax notice for non-filing of ITR, but can at least stop the interest meter and request for not to levy the penalty as the mistake is rectified by the taxpayer on their own i.e. suo moto basis. Having said that both of these options are of damage control type, since now it’s too late to fix anything,” says Tanna.
Jain says if one receives a notice for such non-filing of return, one needs to ensure that the reply for the same is submitted. “It is possible that the information with the tax department is not correct and the same should be clarified in the reply.”
Though Budget 2025 amended the deadline to file ITR-U to up to 48 months from end of the assessment year, it’s not applicable retrospectively.
Chartered Accountant Hardik Kakadiya, president, Chartered Accountant Association Surat (CAAS), says: “CBDT had time and again warned the non-filers who had taken taxation for granted. Now, when the deadline for filing previous years ITRs in near proximity are getting over, the Board may bring controls on non-filers to heavily tax and fine them since they had repeatedly ignored the warnings in pre and post COVID periods. Such offenders may be taken to task under section 68 to 69D for unaccounted monies and taxed under 115BBE where the tax rates reach almost the amount of unaccounted incomes.”
Pallav Pradyumn Narang, Partner, CNK, says: “If the time limit for filing an updated return (ITR-U) has expired, taxpayers who have been flagged as high-risk must consider alternative remedial measures, which may include:
- Voluntary disclosure and settlement: Engaging with tax authorities to disclose discrepancies and seek possible settlement options to avoid legal action.
- Rectification under Section 154: If errors are apparent, taxpayers may apply for rectification through this provision, subject to eligibility.
- Legal remedies: If unjustified penalties or assessments arise, affected taxpayers may consider filing an appeal or seeking legal redress through appropriate forums.
What might be the rules and parameters of RMS system used by the tax department?
Ritika Nayyar, Partner, Singhania & Co. explains: “The RMS usually involves analysing vast amounts of data to pinpoint individuals who should be filing income tax returns but are not. Key information sources include the Statement of Financial Transactions (SFT), which captures high-value financial transactions like property purchases and large bank deposits; Tax Deduction at Source (TDS) and Tax Collection at Source (TCS) records, providing information on income from various sources; Annual Information Return (AIR)/Central Information Branch (CIB) data, offering a broad range of financial data; and data on foreign remittances, exports, and imports, which help identify individuals with international financial activities. Advanced data analytics tools are employed to analyse these data sources and identify patterns of potential non-compliance.
Nayyar adds: “Key parameters used in the RMS include flagging individuals engaging in significant financial transactions without filing returns as high-risk, identifying discrepancies in data from different sources like TDS/TCS data and bank statements, and pinpointing individuals whose financial activity suggests they have income exceeding the taxable threshold. Systems are also used to identify and monitor persons who enter into high value transactions and have potential tax liabilities but have still not filed their tax returns. The CBDT’s overall strategy aims to promote voluntary compliance by identifying potential non-filers and encouraging them to file their returns.” Source Link
